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Abe and Merkel at loggerheads over how to fix global economy

Abe and Merkel

Kickstarting the global economy has become one of the most important items on the agenda of various world leaders and financial experts, although opinions appear to differ on what will be the best way of moving forward.

The issue is set to be one of the primary points of discussion at this week's G7 meeting, although there are clearly some disagreements that will need to be overcome.

Japan's prime minister Shinzo Abe, whose economic policies once drew admiration from across the world, resulting in the term 'Abenomics', has already gone against the advice of German chancellor Angela Merkel earlier this month.

Abe has clearly remained loyal to the idea of large-scale stimulus spending, although Merkel insists that Germany, which has long been one of Europe's most envied economic powers, is doing enough to prevent any potential slowdown.

Merkel has pointed to the country's extra economic activity brought about by the arrival of a one million refugees and migrants over the course of the last year, although her party's handling of the biggest migration crisis since World War II has put her under pressure.

Nevertheless, Merkel has held firm in her belief that Germany is on the right track, adding that Berlin had already shown support for a three-way strategy of structural reforms, including the fiscal and monetary policy of independent central banks, as well as pledging ongoing investment in digital infrastructure.

"With the many refugees we took in last year, we saw a boost to domestic demand which, in my view, was a good contribution to the development of the world economy," she said.

"We are seeking to combine solid budgetary policies with sustainable growth policies and more investment. I think with that we are making our contribution for the good development of the world economy, and we will be discussing the details in depth in Japan."

Japan looking for change

The upcoming G7 meeting will see various world leaders outline their visions for the world economy, many of which look set to contradict with each other.

Abe has already called on global cooperation to help provide a boost to the global economy, adding that not changing anything was no longer an option.

"We spoke about the global economic situation and that we cannot just wait for normal economic cycles but have to proactively tackle the risks to rejuvenate the world economy," he said.

"We need a speeding up of structural reforms and expansive fiscal policies," he said.

Abe has not exactly shied away from making big economic decisions, with the purchasing of large amounts of government bonds and the introduction of a negative interest rate at the heart of his efforts to reverse deflation across Japan.

'Abenomics' enjoyed a certain amount of success at first, helping to sharply weaken the value of the yen to aid the inflation of exporter profits and subsequently inspire a stock market rally.

Yet a full economic recovery failed to materialise, leaving the yen to reverse its course as traders flock to the Japanese unit, which is considered a safe bet in times of turmoil.

Brexit could prove a spanner in the works

Nevertheless, Japan looks set to take the lead on the latest round of G7 meetings, with officials eager to stress the need for uniform action.

As a result, the UK's upcoming referendum on whether to stay in the European Union is being watched with much interest.
The chairman of Japanese company Fujitsu, Masami Yamamoto, has already had his say, telling the BBC that the UK was considered by many markets as being at the heart of the "European region", adding that his company, which is the largest Japanese employer in the UK, would be against any move away from the EU.

"Regarding this Brexit issue, the UK remaining in the EU or not, of course the final decision is to be made by the British people," Mr Yamamoto said.

"But from our perspective we [would] really like the UK to remain in the EU because the UK is going to remain as the central economy in the European region and we would hope that the UK and the EU develop even further.

"Because we believe the UK is the centre in the European region, that's why for the last decade we have already made £3bn in investments.

"If there is any change, either the UK remaining in the EU or not, of course we have to be careful about watching the process and also the outcome and then decide whether we are going to make any further investment or not."

The potential for fracturing the EU is likely to be one of the issues discussed in Japan, and could pose a threat to the united action Abe and his advocates are looking for.